Nick Hodge has been focusing a lot on biotech-ish companies for his Early Advantage newsletter lately, and they usually end up being pretty early-stage stocks with good stories about some kind of breakthrough or unique compound or device and no real financials yet (meaning, little to no revenue or earnings) — just the kind of thing that can can get an investor’s imagination fired up.
So the preliminary warning is this: I’m about to tell you about a company that has effectively no financials, a small pile of cash, and a story. What you want to do with that information is up to you, of course… but stocks that are this small and this bereft of financial data don’t trade on fundamentals, they trade on hope, imagination, and stories. And you can’t know when the enthusiasm about a story will rise or fall.
But you’re all grown-ups (no one under 18 would have read this much text without jumping off to a cat video on YouTube, I presume), so you can make up your own minds. Let me explain what stock he’s actually talking about by walking you through his pitch.
The story is that Nick Hodge interviewed Montel Williams, the former TV talk show host who has Multiple Sclerosis and who was one of the patients who tested the device made by this “secret” company, with excellent results. The interview also included the CEO of the company, and Hodge runs down what the device does and how it will revolutionize treatment for all kinds of brain diseases as well as recovery from traumatic brain injuries. Here’s a snippet:
“… the newest investment opportunity I’ve been researching for my readers involves a groundbreaking medical device…
“A device that promises to forever change how we treat and cure brain diseases…
“A device that could improve — and extend — millions of lives… and make early investors ultra wealthy in the process.
“Montel Williams is one of the patients using this device, which was created by a group of Wisconsin scientists. He first read about it in a magazine article on an airplane.”
So that sounds intriguing, right? So what does the device do?
“This groundbreaking new treatment doesn’t involve any pill regimens…
“Any invasive surgeries…
“Or any agonizing therapies.
“It involves a tiny oral device designed to stimulate certain nerves in your brain through your tongue.
“This nerve stimulation helps treat brain disease in a way that’s never been done before.
“All the science shows it helps the brain to heal itself.
“This therapy is pain-free, easy, and quick — the typical session with a patient lasts about 20 minutes.”
Stimulating nerves on the tongue to help with brain injury? OK, sounds fairly wacky — but stranger things have worked. It does, at least, sound less scary than the deep brain stimulation stuff that researchers have been doing for decades now to try to treat Parkinson’s and other diseases — if only because the deep brain stuff involves, well, getting a little probe deep into the brain.
Here’s another explanation of what their device does:
“… there are thousands of tiny nerves on the tongue that connect to the brain.
“This group of Wisconsin scientists discovered that these nerves could help restore lost physical and mental function.
“So they created a miniature device you place on a patient’s tongue that sends specially patterned impulses to the brain.
“The patient bites down on the device while performing a 20-minute series of specially designed physical and mental exercises for his or her symptoms.
“This stimulation therapy works to repair the damaged areas of the brain.
“What makes this treatment so unique is that it doesn’t just target one specific brain disease but symptoms of multiple diseases….
“No other treatment on the market can both stop the progression of the debilitating symptoms of brain disease AND reverse them!
“The company has three patents pending on this breakthrough technology. So it can’t be copied.”
So what is this company Hodge is pitching? Here’s some more:
“… it’s been an emotional journey for Montel — especially considering he could barely stand before he started using the device four years ago.
“Now, Montel can jog on a treadmill. He’s swimming on his own and even heli-boarding.
“After 10 years of chronic and intense pain, this device is giving Montel his life back.
“And now it’s giving new hope to the 8.8 million people suffering worldwide from multiple sclerosis who are desperately searching for a way to get their lives back.
“As Popular Science writes: ‘Doctors observed patient improvement after a week of daily sessions with the device.'”
And the other big pitch in the story is that the U.S. Army has gotten involved, and has funded the FDA approval process to get this device to the point where they can use it for the thousands of soldiers who have brain injuries…
“The Army is completely funding the FDA clinical trials for the company’s tiny, life-changing device.
“And it could become one of the biggest medical stories of the century….
“But here’s the thing: Like all truly life-changing medical discoveries, timing is critical.
“In order to reap the biggest rewards from this medical advancement, you’ll need to act on this BEFORE results from FDA trials break…
“And BEFORE the company’s share price — which is currently trading around $3.00 — takes off like a surface-to-air missile.”
And all of this is fairly new, apparently:
“In February 2013, the Army signed a contract with this company, and the rest is history….”
And there is a wee bit of financial information in the ad:
“Currently, the company is forecasting $100 million in sales by 2018 and $140 million by 2019.”
So… who is it?
Nick Hodge is teasing a company that’s now called Helius Medical Technologies, which trades over the counter in the US at HSDT and has its primarily listing on the Canadian Securities Exchange at HSM (not the Toronto exchange or even the Venture exchange, this is a little upstart exchange in Canada). The basic info on them at their exchange is here, the operating company had previously been called NeuroHabilitation Corporation and came public through a reverse merger and private placement a couple months ago.
The shares are indeed below $3, they’re at about $2.25 as I write this morning but, since it’s a small and illiquid company with a market cap of under $150 million, it’s quite likely that Hodge’s attention could light at least a small fire under the stock — it hasn’t had much coverage anywhere else that I’ve seen, though the story has gotten quite a lot of popular attention over the last few years before they were a public company (it was in Popular Science and in Slate last year, and Montel Williams learned about them through a story in the American Airlines magazine back in 2010… and the story of the Army’s involvement in the research is told here).
Will it work out? Well, it’s hard to say — this is not the kind of thing that is likely to have a long and protracted FDA approval process or huge safety concerns, since it’s a noninvasive device that effectively is supposed to amplify physical therapy to inspire the brain to “heal itself” more quickly, but that doesn’t mean it’s necessarily a shoo-in — or that it’s going to be effective in large groups of people. I haven’t looked at any of the clinical results from the Army’s testing or seen anything other than the success story from Montel Williams (who helped create the company and is certainly an effective pitchman) or a few other YouTube success stories, and I can’t claim to understand brain injury or rehabilitative therapies to any great degree.
What I can see is a company that has very little communication with investors so far, because they’re brand new as a public company and went public through a pretty opaque reverse merger and a very off-the-beaten-path listing in Canada that was accompanied by what amounts to their initial public funding by private placement. So the company has about seven million dollars now, all of it raised over the Summer, and they say themselves that it won’t be enough to get them through next year so there will almost certainly be more stock offered for sale at some point (perhaps soon, if Hodge’s attention drives the price substantially higher).
That’s not necessarily a huge deal to worry about immediately, not when we don’t even really have any idea how the product will advance in clinical trials or what the market might be for it — really, if there are no fundamentals on which to build an investment case, as here, then diluting the stockholders by selling more stock should have a much less severe impact: You can’t dilute earnings or revenue per share, since they have neither and any guess at those future numbers is pretty silly if you’re going out four or five years, you can only dilute the story, and no one has a “story” button on their calculator.
So what we have now is a company with a market cap of just under $150 million, which is having some of its R&D funded by the U.S. Army but which is otherwise mostly spending money on R&D, mostly, it sounds like, through outsourcing arrangements to develop the next generation of the physical device — the current model is the Portable Neuromodulation Stimulator (PoNS) 2.2, it seems that they aim to go “commercial” with PoNS 4.0 in the next few years. The business model as of now is that they want to sell these devices for $2,500 each and have an ongoing service relationship for replacement tongue sensors and updated software for these devices that will be sent home with patients and used in daily therapy for several months, and that they will build a nationwide network of rehabilitation/physical therapy sites that use the device. That may well be a workable plan, but it’s awfully early to tell — and the clinical trials do not appear to have started enrollment yet as far as I can see (you can see the trials for PoNS registered at clinicaltrials.gov by searching “PoNS Device”, that search may be to restrictive but it only had one result for me, registered in 18 months ago but not recruiting).
So… that’s about all I can tell you. Nick Hodge is teasing Helius Medical, they do have a device that they use to stimulate the brain that appears to have at least helped Montel Williams and other patients with MS or traumatic brain injuries, and they’re getting some R&D support from the Army. Beyond that, you’ll have to decide whether you think this company is worth $150 million today — a decision that will be based almost entirely on whether you think both the device and their business plan will work, either of which is going to be a WAG (wild-ass guess) for most of us. Go forth, research it to your heart’s content, and let us know if you feel the urge to become a Helius shareholder because you think Hodge’s attention will drive the shares up, because it’s a great story, or because you’re convinced their PoNS device will be effective and profitable within a few years… just use the friendly little comment box below.